CGI sees potential gain coming out of pain in Canada's oil patch

Photo: The Canadian Press. All rights reserved.

CGI Chairman Serge Godin, left, and chief executive Michael Roach get set to start the company's annual meeting Wednesday, January 28, 2015 in Montreal. THE CANADIAN PRESS/Ryan Remiorz

MONTREAL - CGI Group says the pain being felt in Canada's oilpatch from lower energy prices presents an opportunity for the IT services company to win new business from customers who are looking for ways to reduce costs.

"When you have information technology, it's an enabler for companies that are rapidly growing but it's also an enabler for companies that have to contain their costs during challenging times," CEO Michael Roach said in an interview.

Some of CGI's largest customers are international oil companies, with the oil sector accounting for about seven per cent of its $10 billion of annual revenues.

Roach said a full outsourcing of IT services could save a company 20 to 30 per cent.

"We would look for growth in that sector to be a little healthier than some of the others," he said following CGI's annual meeting.

Montreal-based CGI (TSX:GIB.A) faced a similar situation several years ago when U.S. states were undergoing fiscal challenges. As it did then, CGI will put together a package of solutions and products as it approaches customers in the oil and gas sector.

Meanwhile, Roach said the lower Canadian dollar — which has tumbled along with the price of oil — improves CGI's competitive advantage in the global market for IT services and makes Canadian operating sites more attractive to U.S. customers.

Armed with lots of cash and access to credit, Roach said the company is on the hunt for acquisitions again as it seeks to double its size in the next five to seven years. Areas of focus for acquisitions are the United States, Germany and Britain.

CGI said earlier that cash generated from operating activities in the September-December quarter increased more than five-fold from a year earlier to $339.2 million. CGI also said its net debt at the end of December was $1.9 billion, down $965.9 million from a year earlier.

Net income in the fiscal first quarter ended Dec. 31 increased 24.5 per cent from a year earlier to $236.3 million. That equalled 74 cents per diluted share, one penny below analyst forecasts but up from 60 cents per share or $189.8 million a year earlier.

CGI's revenue was down $100 million from a year ago to $2.54 billion. Revenues declined 12 per cent in the United States and nine per cent in Canada. However, sales were flat excluding extra work a year earlier from federal Obamacare and state health-care exchanges, Roach said.

The results propelled CGI's shares to an all-time high of $50.65 in intraday trading Wednesday on the Toronto Stock Exchange before falling back to a gain of $1.76 or 3.75 per cent at $48.68.

Shareholders applauded the continuing strong results but once again sought assurances that CGI's role in Obamacare wouldn't thwart the company's ability to win new U.S. government business. Founder Serge Godin says he was surprised that questions persist, saying it has become more of a public relations challenge than any impact on contracts.

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